More mega projects turning to private investors

Concern has been inflamed by Emanuel’s reluctance to reveal the other projects the fund would take on after the energy retrofit. But other infrastructure goals include upgrading an overburdened transit system and speeding up broadband service. The City Council has approved formation of the trust, but Emanuel’s appointees to the board are awaiting approval by the council.

Other public-private projects have triggered controversies about private control.

In one of the largest deals, Indiana got $3.8 billion from an investment group in 2006 to lease the Indiana Toll Road for 75 years. The private firms improved the roadway but also doubled fares for some users, bringing criticism from some legislators who couldn’t do anything about it.

A project for a 10-mile express toll road in the San Diego area in 2007 failed after it did not produce the rates of return the private developer expected.

“I still think there is room for public-private partnerships,” said said Marney Cox, chief economist for the San Diego Association of Governments, which wound up taking over the road in a buyout. “But you need to be careful when you put them together that you don’t get your assumptions out of whack and require that growth occur at extraordinary levels.”

Ybarra said government representatives can try to negotiate limits on toll and fee increases. But the private investors have considerable leverage.

“Governments need this more than institutional investors need this, but I think there’s a benefit to both,” said Mark Huamani, an investment analyst at J.P. Morgan.

In Yonkers, a New York suburb with a mix of affluent and poor neighborhoods, officials are looking for $1.7 billion in private investment money to fix dozens of antiquated schools, including the 88-year-old Gorton High School, and say the benefits of private funding outweigh possible problems. Investors’ returns would be paid with future tax revenue.

“We couldn’t repair the buildings faster than they were deteriorating,” said Joe Bracchitta, chief administrative officer for the school district. “We think that this is a way that urban school districts that are in a state of disrepair or decay can find another way to repair themselves and build 21st century environments for their students.”